"You often find that of the £3 we spend, £1 is spent deciding what to do with the other two.

"This is about minimising that overhead, and we still have political sovereignty, still have the ability to choose how we spend the money locally."

Mr Greenhalgh insisted that each council would maintain its own political identity.

"We are not trying to create a homogenous blob for three councils. Each council will determine the service specification for their council. It will be commissioned though by the same staff," he said.

However there are concerns that the savings will come from many backroom staff and bureaucrats losing their jobs as part of the drive to enforce the cuts imposed from central government.

All three councils are Conservative-run.

Hammersmith and Fulham and Westminster councils have already begun integrating education services, but plan to share environmental, family and corporate services along with Kensington and Chelsea.

Working groups have been set up to look at each of these areas and will report back in February with their recommendations.

It is not the first time that neighbouring councils have decided to share some functions, but the sheer scale of these proposals dwarfs anything that has come before.

The plans also raised worries that there would be inevitable cuts in frontline staff with the cost-saving measures - something Mr Greenhalgh could not rule out.

"Clearly if you have less money to spend you are not going to be able to safeguard every job. We are going to see significant reductions of staff, but this is all about saving every penny, every pound to protect frontline services," he added.

"We are not talking about merging the frontline services. The focus is on how we can minimise service reduction."

The councils have received the firm backing of the communities secretary Eric Pickles, who encouraged other local authorities to follow suit.